The Obama administration's announced its bank rescue plan, and it's about as comforting as the Exxon Corporation's plan to clean up the Exxon Valdez oil spill.
As Paul Krugman puts it, Tim Geithner's proposal is one the Bush team pondered and then rejected six months ago. He calls it "cash for trash."
The economy's drowning in bad assets. Trillions of dollars worth. The Treasury wants to drive up the prices of those bad assets by tempting private investors to buy them up. Go ahead and buy -- the taxpayer will take the hit if those toxic assets turn out to be, well, toxic. Geithner's hoping all those buyers will solve the problem.
After all, he says, those bad assets aren't so bad. They're just a victim of public panic. Those bundled mortgages are just undervalued they say -- hence the bribery -- just taste and see. The Treasury's pushing a few cheap drugs free, in the hope that a few free hits will get the hedge funders addicted again.
But the problem is those assets aren't assets. They're derivatives: bad bets upon bad bets. Otherwise known as junk.
Larry Summers can't admit fault. He helped torpedo the regulation of derivatives while in the Clinton administration. So he's not about to bash derivatives. The problem isn't them, we're told. It's us.
It's kind of like Alaska. Years after the Exxon Valdez belched guck all over the Alaska coast, the financial industry's flooded our economy with garbage, and we're going to let the ships captains tell us how to clean up.
Ask the Alaskans how well that worked in Anchorage. It worked for Exxon, less well for the coast.